CONGRESS OF THE UNITED STATES

CONGRESSIONAL BUDGET OFFICE

A

CBO

PAPER

AUGUST 2003

Utilization of

Tax Incentives

for

Retirement

Saving © Royalty-free/Corbis

© Image Source

CBO

A

P A P E R

Utilization of Tax Incentives for

Retirement Saving

August 2003

The Congress of the United States # Congressional Budget Office 
Note

Numbers in the text and tables may not add up to totals because of rounding.
Preface

This Congressional Budget Office (CBO) paper examines the utilization of tax incentives

for retirement saving, focusing on 1997. The paper breaks down rates of participation in and

contributions to retirement savings plans by age, income, and marital status/earner role and

discusses the patterns that emerge and their implications for public policy. The paper was prepared at the request of the Senate Finance Committee to analyze the various incentives in the

tax code that encourage people to save for retirement. A companion publication, available at

CBO’s Web site (www.cbo.gov), describes those tax code features in detail along with the

requirements that federal law imposes on pensions and other forms of savings. 

Paul Burnham of CBO’s Tax Analysis Division (TAD) wrote the paper under the direction of

Roberton Williams and G. Thomas Woodward. The report’s quantitative analysis built on

programs written by David Weiner and John Sabelhaus. Within CBO, Robert Dennis, Douglas

Hamilton, Arlene Holen, Deborah Lucas, and John Sturrock provided useful comments. In

addition, John Gist and John Taylor of AARP and Richard Ippolito of the George Mason University School of Law reviewed early drafts of the paper and offered valuable criticism and

suggestions. 

Leah Mazade edited the manuscript, and Christine Bogusz proofread it. Denise Williams

prepared early drafts of the text, tables, and figures, and Kathryn Winstead prepared the report

for publication. Lenny Skutnik produced the printed copies, and Annette Kalicki prepared the

electronic versions for CBO’s Web site.

Douglas Holtz-Eakin

Director

August 2003

This study and other CBO publications

are available at CBO's Web site:

www.cbo.gov

CONTENTS

Summary and Introduction 1

The Structure of Retirement Savings Plans 2

Employment-Based Plans 2

Individual Retirement Accounts 3

Trends in Employment-Based Retirement Plans Since 1975 4

A Snapshot of Participation in 1997 5

Participation by Age Group 7

Participation by Income Group 9

Participation by Marital Status/Earner Role 10

A Snapshot of Individual Contributions in 1997 10

Contributions by Age Group 10

Contributions by Income Group 13

Contributions by Marital Status/Earner Role 13

Appendix A

Refinement of the Statistics of Income Databases 15

Appendix B

Detailed Tabulations by Age, Income, and Marital

Status/Earner Role 21

Appendix C

Supplemental Data from the Survey of Consumer

Finances 29
vi UTILIZATION OF TAX INCENTIVES FOR RETIREMENT SAVING

Tables

1. Summary of Workers’ Participation in Tax-Deferred

Retirement Plans in 1997 1

2. Workers’ Participation in Tax-Deferred Retirement

Plans in 1997 6

3. Workers’ Participation in Employment-Based

Retirement Plans in 1997 7

4. Workers’ Participation in Individual Retirement Accounts

and Keogh Plans in 1997 8

5. Workers’ Average Contributions to Tax-Deferred 

Retirement Plans in 1997 11

6. Workers Who Contributed the Maximum Amount to TaxDeferred Retirement Plans in 1997 12

A-1. Contributions to Individual Retirement Accounts,

by Deduction Status and Deductibility 16

A-2. W-2 Forms Added, Deleted, and Modified 18

A-3. Deferred Compensation by Implied Type of Plan 19

B-1. Number of Workers Eligible for Tax-Deferred Retirement

Saving in 1997 22

B-2. Percentage of Workers Contributing to 401(k)-Type Plans in 1997 23

B-3. Percentage of Workers Contributing to Individual

Retirement Accounts in 1997 24

B-4. Percentage of Workers Participating in Any Tax-Deferred

Retirement Plan in 1997 25

B-5. Average Employee Contribution to a 401(k)-Type Plan in 1997 26

B-6. Average Employee Contribution to an Individual

Retirement Account in 1997 27

B-7. Contributions to Individual Retirement Accounts by

Nonearning Spouses in 1997 28
CONTENTS vii

C-1. Workers’ Participation in 401(k)-Type and Noncontributory

Plans in 1997 30

C-2. Total Participation by Workers in Tax-Deferred Retirement

Plans in 1997 31

C-3. Average Contributions to Defined-Contribution Plans in 1997 32

Figures

1. Private-Sector Workers Covered by Employment-Based

Retirement Plans 4

2. Number of Active Participants in Private-Sector Plans,

by Type of Plan 5

Utilization of Tax Incentives

for Retirement Saving

The second half of the 20th century saw continuing

development of the system of employment-based and

individual retirement saving in the United States. This

Congressional Budget Office (CBO) paper profiles retirement plan utilization in 1997 on the basis of data from

tax information returns (for example, Form W-2 for

wages, pension coverage, and 401(k) contributions, and

Form 5498 for individual retirement account contributions). The paper breaks down participation and contributions by age, income, and marital status/earner role and

discusses the patterns that emerge and their implications

for public policy. The paper does not attempt to explore

in detail the characteristics of and rules applying to the

wide range of tax incentives for saving. However, a companion publication, CBO’s Online Guide to Tax Incentives

for Retirement Saving, available at www.cbo.gov, provides

such an examination, and readers are encouraged to use

it in conjunction with the analysis provided here.

In 1997, just over half of all U.S. workers actively participated in a tax-deferred retirement savings plan; that is,

they either contributed to a plan themselves, or their employers contributed to a plan on their behalf.1

 Participation rates varied widely, however, depending on the worker’s age, income, and marital status/earner role (see

Table 1). Workers under age 30 who had income of less

than $20,000 or were unmarried were substantially less

Table 1.

Summary of Workers’ Participation

in Tax-Deferred Retirement Plans

in 1997

Category

Participation Rate

(Percent)

By Age Cohort

Under 30 35

30 to 44 58

45 to 59 64

60 and over 42

All Cohorts 51

By Adjusted Gross Income

Under $20,000 22

$20,000 to $40,000 56

$40,000 to $80,000 70

$80,000 to $120,000 79

$120,000 to $160,000 78

$160,000 and over 76

All Income Groups 51

By Marital Status/Earner Role

Single Earners 41

Married Earners

Sole 53

Primary 72

Secondary 54

All Earners 51

Memorandum:

Nonearning Spouse 6

Source: Congressional Budget Office tabulations of 1997 individual income

tax returns and tax information returns.

Note: Tax-deferred retirement plans include individual retirement accounts,

Keogh plans, and all employment-based retirement plans.

1. The tax incentives offered for retirement saving should be understood in the context of an income tax, in which income from capital

is typically subject to regular rates of taxation. In that context,

retirement savings receive more favorable tax treatment than many

other forms of capital. Some economists feel that any tax on capital

is inappropriate because it imposes too large a deadweight loss on

the economy. This paper does not address that or other, related

issues.
2 UTILIZATION OF TAX INCENTIVES FOR RETIREMENT SAVING

likely than the average worker to participate in retirement

savings plans. In contrast, higher-income, middle-aged,

and married workers with working spouses were much

more likely to be saving in a formal retirement plan. 

Those differences are not surprising. Middle-aged workers

who are in their peak earning years and nearing retirement

generally have more disposable income available for saving

and are more concerned about building up retirement

funds. Young workers tend both to be single and to have

low income; with retirement far in the future, they may

be less concerned about saving for that distant day. As they

age and see their income rise, however, today’s young

workers are likely to increase their saving.

This analysis focuses on saving in formal retirement plans

—specifically, plans sponsored by employers or unions

(employment-based plans), individual retirement accounts

(IRAs), and Keogh plans. Not all saving for retirement

can be found in such plans, however. Owner-occupied

homes, to which a variety of tax incentives apply, provide

a major source of funds for many people, who can use

their home equity for retirement needs either by moving

into less expensive housing or by drawing on reverse mortgages.2

 Starting a business can be another form of saving:

it offers income during working years and can then be sold

to finance retirement. By omitting such alternative forms

of saving, this analysis provides only a partial picture of

workers’ financial preparation for retirement.

The Structure of Retirement

Savings Plans

Workers can save for retirement through employmentbased plans or on their own, in either tax-favored or ordinary accounts. Employers offer different types of plans;

each has limitations that affect who may and who will

choose to participate. Workers can also save on their own,

most often through IRAs, which come in various forms

and have constraints that limit participation. The following brief description of the options for retirement saving

will make statistics on participation easier to understand.

Employment-Based Plans

Employment-based retirement plans are of two types: defined benefit and defined contribution. Defined-benefit

plans promise a specific benefit, or pension, in retirement,

and the employer is responsible for accumulating sufficient

funds to pay it. A worker receives fixed benefits regardless

of the return on the funds invested in the retirement plan.

Benefits are based on a number of factors that may include

a worker’s years of service and earnings history.

Defined-contribution plans, by contrast, specify only how

much the employer will contribute annually; the worker’s

benefits in retirement depend on what happens to the

invested funds. Poor returns on those funds yield lower

income in retirement, whereas higher returns result in

increased retirement income. “Contributory” definedcontribution plans allow employees to make tax-deferred

contributions—that is, the money workers put into the

plans is exempt from income taxes in the year the contributions are made, and taxes are not levied until the funds

are withdrawn. Such plans are of four major types:

# 401(k) plans, available primarily to employees of private companies;

# 403(b) plans , available to employees of nonprofit

organizations and public education agencies;

# 457 plans, available primarily to employees of state

and local governments; and

# Savings Incentive Match Plans for Employees

(SIMPLEs), available to employees of small private

businesses.

All other defined-contribution plans and all definedbenefit plans are “noncontributory” plans, meaning not

that employees do not contribute but rather that any

contributions come from after-tax income and are thus

not tax-deferred. (Such plans, however, are funded primarily by employers, whose contributions are taxdeferred.)

A cash balance plan is a type of defined-benefit plan that

has many of the characteristics of a defined-contribution

plan. Such plans specify annual contributions instead of

a benefit level, but participants are guaranteed a certain

2. Reverse mortgages are loans against one’s home that do not have

to be repaid until the owner dies, sells the residence, or moves out

permanently.
UTILIZATION OF TAX INCENTIVES FOR RETIREMENT SAVING 3

rate of return on their account balances each year. In recent years, many employers have converted traditional

defined-benefit plans to cash balance plans, at least partly

because the cash balance funding formula can reduce

employers’ costs. 

Keogh plans are used by self-employed individuals and are

typically defined-contribution plans. The employer and

the participant in this case are the same person, so Keoghs

could logically be classified as either employment-based

plans or personal saving. Because contributions are reported to the Internal Revenue Service (IRS) directly on

taxpayers’ 1040 forms (as IRA contributions are) rather

than on their W-2 forms (as 401(k) contributions are),

this analysis treats Keogh plans as personal saving.

Contributions to and withdrawals from employmentbased retirement plans are limited in a variety of ways,

in part to discourage participants from consuming their

savings before retirement and in part to ensure that tax

benefits do not go only to higher-income workers. A

penalty tax on early withdrawals, enacted in the Tax

Reform Act of 1986, imposes a levy of 10 percent—with

certain exceptions—on retirement plan withdrawals that

occur before the participant reaches age 591⁄2. Nondiscrimination rules, originally introduced in 1942, require that

the coverage of rank-and-file workers by an employer’s

retirement plan be roughly equivalent to that of “highly

compensated” employees (now defined to include employees earning over $90,000 and most owners of firms). More

recent rules of that kind—unique to 401(k) plans—constrain participation by the highly compensated on the basis

of the rank-and-file’s actual participation (and not just

on the basis of their eligibility to participate). Finally, a

limit on 401(k) plan contributions allows workers to contribute no more than $12,000 (or 100 percent of their

compensation, if it is less than that) to their accounts in

2003.3

 Changes enacted in 2001 allow participants ages

50 and older to make additional “catch-up” contributions

beyond the $12,000 limit.

Individual Retirement Accounts

IRAs are a form of retirement saving that is not tied to

a person’s employer. Currently, anyone who has earned

income or whose spouse has earned income may participate in an IRA. There are two types of accounts, which

are distinguished by whether contributions and earnings

are taxable. Contributions to traditional IRAs may be

either deductible or nondeductible (see the discussion

below), and earnings accrue tax-free; however, withdrawals

in excess of a participant’s nondeductible contributions

are taxable. In contrast, contributions to Roth IRAs—

created in 1998—are nondeductible, but earnings accrue

tax-free and withdrawals in excess of a participant’s contributions are exempt from income tax after five years.4

The maximum annual contribution to either kind of IRA

was initially $2,000, but it increased to $3,000 in 2002.

It will increase to $5,000 by 2008, after which it will be

indexed to inflation. As is the case for 401(k) participants,

IRA owners ages 50 and older may make catch-up contributions, starting in 2002.5

Beginning in 1974, people who were not covered by a

qualified pension plan could contribute up to $2,000 to

a traditional IRA, and all contributions were deductible.6

In 1981, the exclusion of workers covered by employer

pension plans was lifted; however, the Tax Reform Act

of 1986 established phased-in limits on the deductibility

of contributions by people who are covered by a pension

plan themselves or have a covered spouse. Affected taxpayers with adjusted gross income (AGI) that is within

or above the phaseout range can still contribute to an IRA,

3. The limit is scheduled to rise by $1,000 each year through 2006,

when it will reach $15,000. In 1997—the latest year for which

data showing distributional patterns are available—the limit was

the lesser of $9,500 or 25 percent of compensation. For SIMPLEs,

the limit is $8,000 in 2003, increasing to $10,000 by 2005.

4. At present, no employment-based plan receives a tax incentive

analogous to the Roth IRA’s, but such an incentive will be permitted for 401(k) plans beginning in 2006.

5. Catch-up contributions are limited to $500 in 2002 but rise to

$1,000 in 2006.

6. Nonworking spouses of participants in qualified pension plans were

limited to contributions of $250 until 1997, when they, too,

became subject to the $2,000 annual limit.
4 UTILIZATION OF TAX INCENTIVES FOR RETIREMENT SAVING

1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997

0

5

10

15

20

25

30

35

40

45

50

55

60

Defined-Contribution Only Both Types Defined-Benefit Only

Figure 1.

Private-Sector Workers Covered by Employment-Based Retirement Plans

(In percent)

Source: Congressional Budget Office based on Department of Labor, Pension and Welfare Benefits Administration, “Abstract of 1997 Form 5500 Annual Reports,”

Private Pension Plan Bulletin, no. 10 (Winter 2001), Table E4, available at www.dol.gov/ebsa/programs/opr/oprpubs.htm.

but they cannot claim a tax deduction for the full amount

of their contribution.7

Roth IRAs do not limit participation on the basis of a

worker’s coverage under an employment-based plan, but

they do have an income test. Eligibility phases out between

$95,000 and $110,000 of AGI for unmarried taxpayers

and between $150,000 and $160,000 for couples filing

joint tax returns.8

Trends in Employment-Based

Retirement Plans Since 1975

Over the past quarter-century, the biggest change with

regard to employment-based retirement plans has been

the shift from defined-benefit to defined-contribution

plans (see Figure 1). Yet the overall participation rate has

been remarkably stable. From 1975 to 1997, between

45 percent and 47 percent of private-sector workers participated in an employment-based retirement plan. The

mix of plans, however, changed dramatically over that

period. In 1975, 39 percent of private-sector workers were

covered by defined-benefit plans. By 1997, that figure had

dropped to 21 percent. Over the same period, the percentage participating in defined-contribution plans increased

from less than 15 percent to 40 percent.9

7. The phaseout ranges of adjusted gross income in 1997 were

between $25,000 and $35,000 for single taxpayers, between

$40,000 and $50,000 for married couples filing jointly, and

between zero and $10,000 for married taxpayers filing separately.

Beginning in 1998, the phaseout range for workers who are not

covered by a pension plan but whose spouses are covered was

increased to between $150,000 and $160,000. The phaseout ranges

for all other workers will increase gradually through 2007.

8. For married taxpayers filing separate returns, eligibility phases out

over the first $10,000 of AGI.

9. Department of Labor, Pension and Welfare Benefits Administration, “Abstract of 1997 Form 5500 Annual Reports,” Private

Pension Plan Bulletin, no. 10 (Winter 2001), Table E4, available

at www.dol.gov/ebsa/programs/opr/oprpubs.htm.
UTILIZATION OF TAX INCENTIVES FOR RETIREMENT SAVING 5

1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997

0

5

10

15

20

25

30

35

Defined-Benefit

Defined-Contribution

Other Than 401(k)s

401(k)s

Figure 2.

Number of Active Participants in Private-Sector Plans, by Type of Plan

(Millions of participants)

Source: Congressional Budget Office based on Department of Labor, Pension and Welfare Benefits Administration, “Abstract of 1997 Form 5500 Annual Reports,”

Private Pension Plan Bulletin, no. 10 (Winter 2001), Table E8, available at www.dol.gov/ebsa/programs/opr/oprpubs.htm.

All of the growth in participation in defined-contribution

plans between 1975 and 1997 can be attributed to 401(k)

plans. Such plans did not exist prior to 1979, and they

did not account for a significant share of all employmentbased plans until the mid-1980s. Participation in non401(k) plans, both defined-benefit and defined-contribution, peaked in 1984 at 53 million.10 After that, participation in non-401(k) plans declined steadily until in 1997,

fewer workers were covered by such plans than in 1975.

Over that same period (1984 to 1997), participation in

401(k) plans grew from less than 8 million to 34 million

(see Figure 2).

During the late 1990s, a new trend toward the use of cash

balance plans emerged. By 2000, 23 percent of privatesector workers covered by defined-benefit plans were in

cash balance plans.11 Some observers estimate that as much

as 30 percent of the assets of defined-benefit plans are now

in cash balance plans.12

A Snapshot of Participation in 1997

Information returns filed with the IRS provide data on

who contributed to IRAs and 401(k)-type plans. Specifically, IRA contributions (whether or not they are deductible) are reported on Form 5498 and contributions to

401(k)-type plans are reported on Form W-2. (See Appendix A for details on how those forms were prepared for

10. Ibid., Table E8. Unlike Table E4, this table counts participants

in each plan in which they participate, leading to some double

counting.

11. Department of Labor, Bureau of Labor Statistics, National Compensation Survey: Employee Benefits in Private Industry in the United

States, 2000 (January 2003), Table 61, available at www.bls.gov/

ncs/ebs.

12. Phillip C. Copeland and Julia Lynn Coronado, “Cash Balance Pension Plan Conversions and the New Economy” (unpublished issue

brief of the ERISA Industry Committee, Washington, D.C., April

2002).
6 UTILIZATION OF TAX INCENTIVES FOR RETIREMENT SAVING

Table 2.

Workers’ Participation in Tax-Deferred Retirement Plans in 1997

Number of Percentage of Workers Actively Participating in

Workers Employment- IRAs or Any TaxCategory (Thousands) Based Plans Keogh Plans Deferred Plana

By Age Cohort

Under 30 40,765 33 3 35

30 to 44 50,205 54 7 58

45 to 59 31,822 58 11 64

60 and Over 10,605 34 11 42

All Cohorts 133,397 47 7 51

By Adjusted Gross Income

Under $20,000 45,790 20 2 22

$20,000 to $40,000 32,867 52 7 56

$40,000 to $80,000 37,145 65 8 70

$80,000 to $120,000 10,812 72 12 79

$120,000 to $160,000 3,097 67 19 78

$160,000 and Over 3,686 59 26 76

All Income Groups 133,397 47 7 51

By Marital Status/Earner Role

Single Earners 64,388 38 4 41

Married Earners

Sole 18,955 47 10 53

Primary 25,028 67 10 72

Secondary 25,028 49 8 54

All Earners 133,397 47 7 51

Memorandum:

Nonearning Spouse 18,955 n.a. 6 6

Source: Congressional Budget Office tabulations of 1997 individual income tax returns and tax information returns.

Notes: For cross-tabulations of the categories, see Tables B-1 (number of workers) and B-4 (percentage participating in any tax-deferred plan).

n.a. = not applicable.

a. Includes individual retirement accounts (IRAs), Keogh plans, and all employment-based retirement plans.

analysis.) The most recent data available for this paper

covered 1997—before the introduction of Roth IRAs. As

a result, only tax-deferred plans are covered in this snapshot.

Despite the fact that employed taxpayers are universally

eligible to participate in some form of tax-deferred retirement savings plan, only about half of them do so. In 1997,

51 percent of workers participated in tax-deferred retirement plans, the vast majority in employment-based plans

(see Table 2). Contributory, or 401(k)-type, plans were

the most common, covering 27 percent of workers;

another 20 percent participated only in noncontributory

plans (see Table 3).13 About 4 percent of workers actively

13. Some workers participate in both a 401(k)-type plan and a noncontributory plan. However, such workers cannot be identified

through tax data alone. Evidence from the Federal Reserve Board’s

Survey of Consumer Finances indicates that approximately 5 percent of workers participate in both types (see Table C-1 for details).
UTILIZATION OF TAX INCENTIVES FOR RETIREMENT SAVING 7

Table 3.

Workers’ Participation in Employment-Based Retirement Plans in 1997

Number of Percentage of Workers Participating in

Workers 401(k)-Type Noncontributory

Category (Thousands) Plansa Plans Onlyb

By Age Cohort

Under 30 40,765 15 18

30 to 44 50,205 32 22

45 to 59 31,822 36 22

60 and Over 10,605 18 16

All Cohorts 133,397 27 20

By Adjusted Gross Income

Under $20,000 45,790 6 14

$20,000 to $40,000 32,867 27 25

$40,000 to $80,000 37,145 40 25

$80,000 to $120,000 10,812 53 19

$120,000 to $160,000 3,097 52 15

$160,000 and Over 3,686 45 14

All Income Groups 133,397 27 20

By Marital Status/Earner Role

Single Earners 64,388 19 19

Married Earners

Sole 18,955 27 20

Primary 25,028 44 23

Secondary 25,028 29 20

All Earners 133,397 27 20

Source: Congressional Budget Office tabulations of 1997 individual income tax returns and tax information returns.

Note: For cross-tabulations of the categories, see Tables B-1 (number of workers) and B-2 (percentage contributing to a 401(k)-type plan). For more details on

noncontributory plans, see Table C-1.

a. Includes 401(k)s, 403(b)s, 457s, and the federal Thrift Savings Plan.

b. Includes all defined-benefit and defined-contribution plans other than 401(k)-type plans.

participated in (that is, contributed to) an IRA or a Keogh

plan but did not participate in an employment-based plan.

Overall, approximately 6 percent of workers (and spouses

without earnings) contributed to IRAs in 1997 (see

Table 4); about half of that group also participated in an

employment-based plan. Another 1 percent of workers

contributed to Keogh plans. Rates of participation in every

type of retirement plan varied significantly by age, income,

and marital status/earner role.

Participation by Age Group

Workers’ participation in tax-deferred retirement plans

in 1997 varied by age, rising from 35 percent of workers

under age 30 to about 60 percent of those between 30 and

60 years of age, then falling to just 42 percent of those

60 and older (see the top panel of Table 2). The figure

for older workers, however, is misleadingly low. Many

older workers are inactive participants who either are

already partially retired and receiving benefits, expect to

receive benefits from a previous employer, or own an IRA
8 UTILIZATION OF TAX INCENTIVES FOR RETIREMENT SAVING

Table 4.

Workers’ Participation in Individual Retirement Accounts

and Keogh Plans in 1997

Number of Percentage of Workers Participating in

Workers Keogh Individual Retirement

Category (Thousands) Plans Accounts

By Age Cohort

Under 30 40,765 * 3

30 to 44 50,205 1 6

45 to 59 31,822 2 9

60 and Over 10,605 1 10

All Cohorts 133,397 1 6

By Adjusted Gross Income

Under $20,000 45,790 * 2

$20,000 to $40,000 32,867 * 7

$40,000 to $80,000 37,145 1 7

$80,000 to $120,000 10,812 3 9

$120,000 to $160,000 3,097 5 14

$160,000 and Over 3,686 9 17

All Income Groups 133,397 1 6

By Marital Status/Earner Role

Single Earners 64,388 * 4

Married Earners

Sole 18,955 2 8

Primary 25,028 2 8

Secondary 25,028 1 7

All Earners 133,397 1 6

Memorandum:

Nonearning Spouse 18,955 n.a. 6

Source: Congressional Budget Office tabulations of 1997 individual income tax returns and tax information returns.

Notes: For cross-tabulations of the categories, see Tables B-1 (number of workers) and B-3 (percentage contributing to an IRA).

* = less than 0.5 percent; n.a. = not applicable.

to which they did not contribute in 1997. 14 Counting

those inactive participants raises the measure of coverage

for elderly workers to 75 percent—close to the comparable

rate of 77 percent for the 45-to-59 age group. 

Much of the pattern of participation in retirement plans

may be ascribed to the life cycle of workers. In what is

sometimes termed the life-cycle model of saving, workers

spend their early years investing in education, housing,

and durable goods and not saving for retirement. In their

middle years, they focus more on retirement saving, because they have more resources available to save and their

14. The percentage of workers who do not actively participate in a

retirement plan but who expect to receive benefits from a previous

employer was tabulated from the Federal Reserve Board’s 1998

Survey of Consumer Finances. The percentage currently receiving

benefits was tabulated from IRS Forms 1099-R. The percentage

owning an IRA to which they did not contribute was tabulated

from 5498 forms. Counting inactive participants, coverage among

all age groups was 61 percent (see Table C-2 for more details). 
UTILIZATION OF TAX INCENTIVES FOR RETIREMENT SAVING 9

retirement is drawing nearer. People who continue to work

in their later years tend to be those who need to work

because their savings are limited or those who simply prefer working and for whom retirement savings are unlikely

to be an issue. Some observers have expressed concern that

the low participation rates of younger workers in retirement savings plans are symptomatic of a generation of

nonsavers who will be poorly prepared for retirement. The

life-cycle model indicates, however, that saving for retirement naturally increases as workers age. Thus, young

workers are more likely to participate as they grow older.

Employment-Based Plans. The gap between the participation rates of workers over and under 30 is most pronounced for 401(k)-type plans. Only 15 percent of workers under age 30 participated in them in 1997, which is

less than half the rate for the 30-to-59 age group (see

Table 3). Participation rates in noncontributory plans

varied much less among age groups, ranging from 16 percent to 22 percent. The trend toward employers’ offering

401(k)-type plans, if it continues, is likely to widen the

gap between the participation rates of younger workers

and their older counterparts.

IRAs and Keogh Plans. The fraction of workers contributing to IRAs in 1997 rose steadily with age, climbing

from 3 percent of those under age 30 to 10 percent of

those ages 60 and older (see Table 4). Rates of participation in Keogh plans were lower, reaching a maximum of

2 percent of workers ages 45 through 59. That rate is

deceptively low, however, given that only self-employed

workers may contribute to Keoghs and only about 8 percent of all workers are self-employed.

Participation by Income Group

In 1997, the percentage of workers who participated in

a tax-deferred retirement plan generally increased with

income (see the middle panel of Table 2). The third of

workers with the lowest income—less than $20,000—were

least likely to participate: only 22 percent of them were

active in any plan. In contrast, more than half of workers

with income between $20,000 and $40,000 participated,

as did two-thirds of those with income between $40,000

and $80,000. Above that income level, participation rates

were fairly stable at just under 80 percent.

Workers at the bottom of the income scale are more likely

than workers in other income groups to be young; their

rates of participation will probably rise as they age. Regardless of age, however, low-income workers spend a

higher percentage of their income on basic living expenses

and save less for retirement. Beyond that, workers whose

income is low throughout their lives may qualify in retirement for Social Security benefits that will replace nearly

all of their preretirement earnings. 

Many low-income workers also experience lower marginal

tax rates (the rate on the last dollar of income), which for

them reduces the value of the tax incentive to participate

in a retirement plan. If they have no tax liability, and many

do not, then the tax incentive to participate is altogether

absent.

Employment-Based Plans. In 1997, 53 percent of workers

with income between $80,000 and $120,000 participated

in 401(k)-type plans. For groups with income below

$80,000, participation declined as income fell, reaching

a low of 6 percent among those with income of less than

$20,000. Participation rates were also slightly lower at the

highest income levels.

Participation solely in noncontributory employment-based

plans was greatest—at 25 percent—for workers with income between $20,000 and $80,000. For the group with

income below $20,000, participation rates were lower than

that but still exceeded those for 401(k)-type plans by a

factor of more than two. Furthermore, participation rates

declined as income increased above $80,000, ultimately

falling to 14 percent for the highest-income workers—

much lower than the rate for 401(k)-type plans.15

Those data suggest that the nondiscrimination rules that

are unique to 401(k)-type plans fail to spread the benefits

15. The lower levels of participation in both 401(k)-type plans and

noncontributory plans at the highest income levels are not as big

an anomaly as they may at first seem. They mainly reflect the

higher percentage of self-employed individuals in those income

groups. By statute, their participation in either type of plan is not

reflected on Form W-2—the data source used to identify participants in employment-based retirement plans. Instead, self-employed

workers participate in Keogh plans, which are reported directly

on Form 1040.
10 UTILIZATION OF TAX INCENTIVES FOR RETIREMENT SAVING

of the tax incentives among all workers as evenly as is the

case for noncontributory plans. That is not to say, however, that those rules do not have some effect. The proportion of the tax benefits of 401(k)s that goes to the

highly compensated might have been even greater in the

absence of those rules. Nevertheless, the trend toward

401(k)-type plans and the failure of many low-income

workers to take part in those plans may lead to further

declines in their already low rates of participation in all

types of retirement plans.

IRAs and Keogh Plans. Rates of workers’ participation in

IRAs in 1997 increased with income, rising from 2 percent

of workers with income below $20,000 to 17 percent of

those with income above $160,000 (see Table 4). Rates

of participation in Keogh plans followed a similar pattern,

ranging from less than 1 percent of workers with income

below $20,000 to 9 percent of those with income above

$160,000. The relatively high IRA and Keogh participation rates for workers with income above $80,000 almost

completely offset the decline of participation in employment-based plans among workers in that income group.

Hence, the rate of participation in any tax-deferred plan

is relatively flat for those with income above $80,000.

Participation by Marital Status/Earner Role

Participation in retirement plans is likely to vary with

family circumstances—in particular, with the number of

adults in the family and with whether they work. CBO’s

analysis distinguishes families on the basis of whether the

head of the family is married and, within couples, whether

an individual is the sole earner, the primary earner, the

secondary earner, or a nonearner.16 Rates of participation

in retirement plans in 1997 ranged from 41 percent for

unmarried workers to 72 percent for married primary

earners (see the lower panel of Table 2). For other married

workers, participation was approximately 54 percent. 

Employment-Based Plans. Rates of participation in 401(k)-

type plans were the most sensitive to a worker’s role in

the family. About 44 percent of married primary earners

participated in such a plan, compared with just 19 percent

of unmarried workers. For married workers other than

primary earners, participation averaged around 28 percent.

In contrast to 401(k) participation rates, those for noncontributory plans were not very sensitive to a worker’s

family situation. Again, married primary earners were most

likely to participate and unmarried workers were least

likely, but all participation rates were between 19 percent

and 23 percent. Married workers were less likely to

participate in a noncontributory plan than in a 401(k)-type

plan, but there was no difference in participation among

unmarried workers.

IRAs and Keogh Plans. Active participation in an IRA was

distinctly lower, at 4 percent, for unmarried workers than

for married workers—largely as a reflection of their lower

income. Among married workers, the participation of both

earners and nonearners was between 6 percent and 8 percent. Participation in Keogh plans followed a similar pattern, but the levels were lower.

A Snapshot of Individual

Contributions in 1997

Participants in IRAs, Keogh plans, and 401(k)-type plans

contributed widely varying amounts to their accounts in

1997 (see Table 5). Because of the lower limit on contributions to IRAs, average deposits to them were lower than

deposits to Keogh plans or 401(k)-type plans, whereas the

percentage of workers contributing the maximum amount

was much higher (see Table 6). Like participation rates,

average contribution levels and the percentage of workers

contributing the maximum amount varied by income,

age, and marital status/earner role.

Contributions by Age Group

The three types of retirement plan exhibited different patterns of contributions among age groups in 1997. Average

contributions to IRAs increased slowly but steadily with

age, rising from about $1,400 for workers under age 30

to about $1,700 for those ages 60 and over (see Table 5).

More than half of contributing workers in each age

category deposited the maximum amount allowed (see

16. A spouse earning less than $2,000 was classified as a nonearner

because he or she could make IRA contributions in excess of

earnings. In such cases, the other spouse was classified as the sole

earner.
UTILIZATION OF TAX INCENTIVES FOR RETIREMENT SAVING 11

Table 5.

Workers’ Average Contributions to Tax-Deferred Retirement Plans in 1997

Individual

Retirement Accounts Keogh Plans 401(k)-Type Plansa

Number of

Workers

Contributing 

(Thousands)

Average

Contribution

(Dollars)

Number of

Workers

Contributing

(Thousands)

Average

Contribution

(Dollars)

Number of

Workers

Contributing

(Thousands)

Average

Contribution

(Dollars)

By Age Cohort

Under 30 1,020 1,407 24 4,675 6,128 1,592

30 to 44 2,815 1,530 469 8,050 16,288 2,681

45 to 59 2,971 1,675 546 8,211 11,360 3,466

60 and Over 1,012 1,713 121 8,612 1,889 3,213

All Cohorts 7,818 1,593 1,159 8,115 35,666 2,772

By Adjusted Gross Income

Under $20,000 1,083 1,489 42 2,245 2,695 630

$20,000 to $40,000 2,158 1,517 104 2,665 8,914 1,504

$40,000 to $80,000 2,511 1,502 286 4,098 15,020 2,621

$80,000 to $120,000 995 1,776 242 6,360 5,739 4,148

$120,000 to $160,000 443 1,854 145 9,433 1,624 5,451

$160,000 and Over 628 1,918 340 14,578 1,673 7,015

All Income

Groups 7,818 1,593 1,159 8,115 35,666 2,772

By Marital Status/Earner Role

Single Earners 2,833 1,549 223 7,290 12,404 2,190

Married Earners

Sole 1,444 1,626 290 11,311 5,147 3,580

Primary 1,878 1,613 377 9,812 10,973 3,398

Secondary 1,663 1,615 268 2,960 7,141 2,239

All Earners 7,818 1,593 1,159 8,115 35,666 2,772

Memorandum:

Nonearning Spouse 1,142 1,583 n.a. n.a. n.a. n.a.

Source: Congressional Budget Office tabulations of 1997 individual income tax returns and tax information returns.

Notes: For cross-tabulations of the categories, see Tables B-5 (average contribution to a 401(k)-type plan) and B-6 (average contribution to an IRA). For employer

contributions to defined-contribution plans, see Table C-3.

n.a. = not applicable.

a. Includes 401(k), 403(b), and 457 plans.

Table 6). Contributions to Keogh plans averaged over

$8,000 for all but the youngest age group, for whom the

average was only about $4,700. Few Keogh participants

contributed the maximum allowable amount.

Employee contributions to 401(k)-type plans increased

rapidly up to age 60, with the average contribution in the

45-to-59 age group more than double that in the under-30

group. Above age 60, however, the average dropped
12 UTILIZATION OF TAX INCENTIVES FOR RETIREMENT SAVING

Table 6.

Workers Who Contributed the Maximum Amount to Tax-Deferred

Retirement Plans in 1997

Individual

Retirement Accounts Keogh Plans 401(k)-Type Plansa

Number of

Workers

Contributing

(Thousands)

Percentage

Contributing

Maximum

Amount

Number of

Workers

Contributing

(Thousands)

Percentage

Contributing

Maximum

Amount

Number of

Workers

Contributing

(Thousands)

Percentage

Contributing

Maximum

Amount

By Age Cohort

Under 30 1,020 51 24 1 6,128 2

30 to 44 2,815 56 469 5 16,288 6

45 to 59 2,971 69 546 7 11,360 9

60 and Over 1,012 70 121 9 1,889 10

All Cohorts 7,818 62 1,159 6 35,666 6

By Adjusted Gross Income

Under $20,000 1,083 58 42 6 2,695 1

$20,000 to $40,000 2,158 56 104 6 8,914 1

$40,000 to $80,000 2,511 57 286 3 15,020 4

$80,000 to $120,000 995 71 242 3 5,739 10

$120,000 to $160,000 443 79 145 3 1,624 21

$160,000 and Over 628 87 340 12 1,673 40

All Income

Groups 7,818 62 1,159 6 35,666 6

By Marital Status/Earner Role

Single Earners 2,833 62 223 5 12,404 3

Married Earners

Sole 1,444 62 290 9 5,147 12

Primary 1,878 62 377 6 10,973 8

Secondary 1,663 63 268 4 7,141 5

All Earners 7,818 62 1,159 6 35,666 6

Memorandum:

Nonearning Spouse 1,142 62 n.a. n.a. n.a. n.a.

Source: Congressional Budget Office tabulations of 1997 individual income tax returns and tax information returns.

Note: n.a. = not applicable.

a. Includes 401(k), 403(b), and 457 plans.

slightly below the level of the 45-to-59 group. For no age

category did the percentage of workers contributing the

maximum exceed 10 percent.

Those contribution patterns reflect primarily life-cycle

factors. As noted earlier, individuals are more inclined to

save for retirement as the time for it approaches and are

more likely then to have the means to do so. Hence,

average IRA and Keogh contributions were highest among

workers closest to retirement. In addition, that same group

was most likely to contribute the maximum amount

allowed to a 401(k)-type plan.
UTILIZATION OF TAX INCENTIVES FOR RETIREMENT SAVING 13

Contributions by Income Group

Employee contributions to 401(k)-type plans increased

with income, averaging roughly 4 percent of participants’

earnings (see Table 5). At the highest income levels, 40

percent of participants made the maximum allowable

contribution of $9,500 (see Table 6). Virtually no one

at the lowest income levels contributed the maximum.

As was the case with 401(k)-type plans, average contributions to Keogh plans increased with income, but their

levels were consistently higher. The percentage contributing the maximum amount was actually higher for groups

with income below $40,000 than it was for groups with

income between $40,000 and $160,000. That is because

Keogh contributions are limited not only by a dollar cap

of $30,000 but also by the amount of an individual’s selfemployment income. It is the latter limit that is binding

at lower levels of income.

Average IRA contributions varied little with income, rising

from $1,489 at the lowest income level to $1,918 at the

highest. A majority of participants in every income

category contributed the maximum amount of $2,000.

Average contributions to IRAs are much less affected by

income levels than are contributions to 401(k)-type plans.

In fact, for groups with income under $40,000, average

IRA contributions are higher than average 401(k) contributions. IRA contributions may be less sensitive to income

simply because of the lower maximum amount—$2,000

for IRAs versus $9,500 for 401(k)s in 1997. Lower-income

workers are also more likely to be able to deduct IRA contributions on their tax returns than higher-income workers

are, because more higher-income workers participate in

employment-based pension plans that make them ineligible to deduct IRA deposits.17 A third factor could be that

contributions to 401(k)-type plans generally come from

regular payroll deductions specified as a percentage of

earnings. As earnings rise, so do those contributions. In

contrast, contributions to IRAs tend to be made in lump

sums that appear to vary less with income.

Contributions by Marital Status/Earner Role

Primary earners in two-earner married couples and earners

in one-earner couples made the largest contributions to

401(k)-type plans in 1997, averaging approximately

$3,500 (see Table 5). Other workers’ contributions

averaged less than two-thirds of that amount.

Average Keogh contributions were distinctly lower among

secondary earners than among any other earners. That may

imply that secondary earners work primarily to enhance

their current living standards rather than to save for retirement.

In sharp contrast, average contributions to IRAs varied

little by a worker’s marital status or earner role. Married

workers made slightly larger contributions than did

spouses without earnings or unmarried workers. The

percentage contributing the maximum amount did not

vary at all by marital status or earner role.

17. Data from 5498 forms seem to indicate that lower-income individuals who are covered by an employment-based plan contribute to

IRAs as if they were subject to the same limits as higher-income

individuals are when, in fact, they are not. That tendency would

serve to reduce contributions by lower-income individuals as well

as by the higher-income individuals who are, indeed, subject to

the limits. 

APPENDIX

A

Refinement of the Statistics

of Income Databases

The tabulations presented in this report come from

a sample of 1997 tax returns created by the Statistics of

Income (SOI) Division of the Internal Revenue Service

(IRS). That file was enhanced by attaching data from two

different tax information returns—Form 5498 and Form

W-2—to each record. Those forms do not undergo the

same degree of “cleaning” by the SOI Division as the tax

returns themselves do. Without that cleaning, superseded

records remain in the file as do current records with

amounts and codes that are not consistent with amounts

reported on the same taxpayer’s Form 1040. Therefore,

the Congressional Budget Office (CBO) developed separate cleaning and reconciliation procedures for the two

forms to delete superfluous records and impose consistency with the amounts reported on Forms 1040.

Forms 5498 

Forms 5498 are prepared annually by the administrators

of individual retirement accounts (IRAs) and sent to the

accounts’ owners to report their contributions, rollovers,

and end-of-year balances. Individuals receive one 5498

form for each IRA they own, even if the IRAs are administered by the same party. 

The original file of 5498s that CBO received from the IRS

contained 179,791 forms, of which 1,933 were eliminated

because they were for years other than 1997. Of the remainder, 907 were coded as amended or as “amended original” returns. CBO developed a set of rules to determine

when amended returns should be used in place of original

returns. In general, amended returns were retained, and

original returns that had been amended were deleted. In

fact, however, most amended returns were not associated

with an original return, so CBO actually deleted only 123

records from the file.

Because contributions reported on Form 5498 may be

either deductible or nondeductible (the reporting institution has no way of knowing which), it is impossible to

precisely reconcile an individual’s 5498s with his or her

Form 1040. If a deduction was claimed on the 1040 without an accompanying 5498, CBO’s reconciliation procedure created a dummy 5498 with the deductible amount

as the amount contributed. Otherwise, the procedure

focused on classifying the amount as a simplified employee

pension (SEP) contribution or as an IRA contribution that

was deductible, nondeductible, or “unallowable.”

Some SEPs were easy to identify. SEPs are the only contributions reported on Form 5498 that can legitimately exceed $2,000, so all contributions in excess of that amount

were instant candidates for SEP status. Not all such contributions, however, could be so counted. SEPs are reported on the Keogh line of Form 1040 instead of the IRA

line; consequently, if the Keogh line on a given return was

zero, none of the contributions could be counted as SEPs.

Frequently, the Keogh line was not zero but was still less

than the amount of the contribution. In such cases, CBO

counted as a SEP the portion of the contribution up to

the amount reported on the Keogh line. It counted

amounts in excess of the Keogh line (or the maximum

SEP contribution of $9,500) as unallowable.
16 UTILIZATION OF TAX INCENTIVES FOR RETIREMENT SAVING

After reconciling the W-2 forms (discussed below), CBO’s

reconciliation procedure for the 5498s determined which

taxpayers (or spouses) were covered by a qualified plan.

For those that were so covered, it calculated the maximum

allowable IRA deduction using the filing status and adjusted gross income (AGI) from the individual’s Form

1040. It then compared actual IRA deductions claimed

with the calculated maximum amount. Deductions within

the limit were counted as “deductible/deducted.” Deductions in excess of the limit were counted as “nondeductible/deducted.”

If the sum of all contributions exceeded the amount

allowed as an IRA deduction, three tests were applied to

determine if any 5498s should be deleted at this stage: 

# Were any 5498s clearly duplicates of one another?

# Was any single contribution larger than $9,500,

meaning that it was too large even to be a SEP?

# Did any 5498 with a contribution of more than

$2,000 have a zero entered as the market value? 

If the answer to any of those questions was yes, the 5498

was deleted.

Contributions reported on Form 5498 but not deducted

on Form 1040 were first tested to see whether they could

be SEPs. Contributions not deducted as IRAs were

counted as SEPs up to the amount reported on the Keogh

line. Additional amounts up to the maximum allowable

deduction were counted as “deductible/not deducted.”

Amounts above the maximum were counted as “nondeductible/not deducted.”

Those counting rules allowed the Keogh line on the 1040

form to be split between Keogh plans and SEPs. SEPs

totaled $564 million, leaving $9,674 million from Keoghs.

With regard to IRAs, tabulations using the above rules

can be presented in two different ways: according to

whether the contribution was deducted and according to

whether the contribution was, in fact, deductible (see

Table A-1). On the one hand, those tabulations showed

that 5.3 percent of IRA deductions taken were not legitimately deductible. Of contributions that were legitimately

Table A-1.

Contributions to Individual

Retirement Accounts, by Deduction 

Status and Deductibility

Category

In Millions

of Dollars

As a

Percentage

of Total

Contributions

By Deduction Status

Contributions That

Were Deducted

Deductible 8,201 56

Nondeductible 462 3

Subtotal 8,663 59

Contributions That

Were Not Deducted

Deductible 1,407 10

Nondeductible 4,234 29

Subtotal 5,641 39

Contributions That

Were Unallowable 288 2

Total Contributions 14,592 100

By Deductibility

Contributions That

Were Deductible

Deducted 8,201 56

Not deducted 1,407 10

Subtotal 9,608 66

Contributions That

Were Not Deductible

Deducted 462 3

Not deducted 4,234 29

Subtotal 4,696 32

Contributions That

Were Unallowable 288 2

Total Contributions 14,592 100

Source: Congressional Budget Office tabulations of 1997 tax information

returns.

deductible, on the other hand, 14.6 percent were not actually claimed as deductions. Overall, if taxpayers in 1997

had used all of the deductions to which they were entitled

(and only those), IRA deductions would have been

10.9 percent higher than they were.
APPENDIX A REFINEMENT OF THE STATISTICS OF INCOME DATABASES 17

An alternative source of data on nondeductible IRAs is

Form 8606, which must be filed for every nondeductible

IRA contribution and for every distribution from an

account to which nondeductible contributions have been

made. Nondeductible contributions derived from Forms

5498 contrast markedly with those reported on Forms

8606. According to the 5498s, nondeductible contributions totaled $5.9 billion, whereas the 8606s yielded a total

of $3.3 billion. There are, however, more reasons to doubt

the accuracy of the 8606 figures than the accuracy of the

5498 figures. Form 8606 is filed by the taxpayer, and

failure to complete and file it has no immediate tax consequences. Form 5498, however, is filed by the financial

institution administering the IRA. Failure to file the form

would deny customers a documentable tax deduction, not

to mention trigger the possibility of IRS sanctions. Clearly,

the incentive of the financial institutions to provide accurate information to both IRA owners and the IRS is

greater than the incentive of taxpayers to fill out one more

form that does not affect their tax liability for the current

year. For that reason, CBO judged the data from the

5498s to be more credible than the data from the 8606s.

Forms W-2 

Each year, employers send every employee a Form W-2

that reports wages subject to tax, certain forms of deferred

compensation, pension coverage, and taxes paid. Individuals receive one W-2 from each employer they had during

the year. 

The original file of W-2s that CBO received from the IRS

contained 169,695 forms, of which 3,024 were eliminated

because they were for years other than 1997. Of the remainder, 230 were coded as amended returns. CBO developed a set of rules, similar to those it used for the 5498

forms, to determine when to use amended returns in place

of original returns. Because IRS cleaning procedures for

W-2s are more thorough than for other forms, CBO

deleted only 72 records as a result of those rules.

The purpose of analyzing the W-2s was to determine

taxpayers’ eligibility for IRA deductions and to estimate

contributions to 401(k), 403(b), and 457 plans and to the

federal Thrift Savings Plan.1

 The form contains a box for

“Deferred Compensation,” the amount in which was

assigned to a type of plan according to the following

criteria:

# Unlike all other forms of deferred compensation, participation in a 457 plan does not preclude a deductible

IRA contribution and therefore requires that the box

designated “Pension Coverage” not be checked. Consequently, if the box was not checked, CBO deemed the

deferred amount a contribution to a 457 plan.

# Of amounts reported as “Deferred Compensation,”

only contributions to 401(k) and 403(b) plans are

subject to the Medicare Hospital Insurance (HI) tax

but not to income tax. Therefore, if the pension coverage box was checked and the deferred amount equaled

the difference between compensation subject to the

HI tax and compensation subject to income tax, the

deferred amount was deemed a contribution to a

401(k)-type plan.

# Otherwise, if the pension coverage box was checked,

the contribution was deemed to have gone to some

“Other” kind of plan (a category that would include

501(c)(18)(D) plans, an uncommon type of retirement

savings vehicle offered by nonprofit organizations).

To fully reconcile the W-2s with the 1040s, CBO compared the taxable amounts (including tips and excess

deferrals) from the W-2s with the amount reported as

salaries and wages on the 1040. If the amounts on the two

types of forms were within $10 of one another, they were

deemed a match. A frequent cause of mismatches was the

failure to report on the 1040 tips and “excess deferrals”

that appeared on a W-2. (Excess deferrals are amounts

deferred in excess of the statutory maximum for a specific

type of plan.)

1. Because no further distinction is made among 401(k)s, 403(b)s,

and the federal Thrift Savings Plan, they are collectively referred

to as 401(k)-type plans. For purposes of this appendix, 457 plans

are not included in that term.
18 UTILIZATION OF TAX INCENTIVES FOR RETIREMENT SAVING

CBO used several approaches to reconcile the W-2s with

the 1040s. The first method was to temporarily exclude

all amounts not included in Box 1 of the W-2 (wages, tips,

and so forth). If the amount in Box 1 matched the amount

on the 1040 and there were no excess deferrals, the excess

was attributed to tips, and the amount shown as “Allocated

Tips” in Box 8 was replaced with zero. If there were excess

deferrals of less than $2,000 attributable to a 457 plan,

CBO converted the 457 contributions into 401(k)-type

contributions, which have a higher statutory maximum,

by imputing a check in the pension coverage box. If excess

deferrals exceeded $2,000 or were attributable to a 401(k)-

type plan, CBO reduced deferred compensation to

eliminate the excess.

The remaining cases fell into two categories: returns in

which wages and salaries on a 1040 exceeded the corresponding amounts on all associated W-2s, and returns

in which wages and salaries on a 1040 fell short of the

corresponding amounts on the W-2s. In the former case,

dummy W-2s that contained the missing wages were

created. CBO assumed that all such returns had no deferred compensation and no pension coverage. In the latter

case, specific W-2s were deleted, or—if no combination

of W-2s matched the 1040—the wages on all W-2s were

scaled to hit the proper total. CBO scaled deferred

compensation amounts on those W-2s by the same factor

that it used for wages.

Finally, CBO compared IRA deductions from the 1040

with the maximum allowable deduction based on AGI

and the status of the pension coverage box. If the deduction was less than $2,000 but exceeded the maximum

allowable amount, and no amount was reported in the

deferred compensation box, then CBO unchecked the

pension coverage box.

As a result of those procedures, CBO deleted 3,549 W-2s

and created 20,098 from scratch. Of the resulting 183,148

records, 1 percent were reclassified from “covered by a

pension plan” to “not covered by a pension plan,” or vice

versa; nearly 21⁄2 percent had their compensation modified

in some way; and less than 1⁄2 percent had other fields

modified (see Table A-2). 

Table A-2.

W-2 Forms Added, Deleted,

and Modified

Category Number

Percentage

of Reconciled

Records

Additions and Deletions

Original Number of Records 169,695 n.a.

Deleted for wrong year -3,024 n.a.

Superseded by amended 

return -72 n.a.

Records Subject to

Reconciliation Procedure 166,599 n.a.

Deleted to reconcile

with Form 1040 -3,549 n.a.

Added to reconcile

with Form 1040 20,098 n.a.

Total 183,148 100.0

Modifications

Pension Plan Box Checked

or Unchecked as Appropriate 1,635 0.9

Box 1 (Wages, tips, etc.)

Scaled by Form 1040 Amount

Divided by Combined W-2

Amounts 4,479 2.4

Box 5 (Medicare wages)

Reduced to Equal Box 1 Plus

Deferred Compensationa 22 *

Box 8 (Allocated tips)

Zeroed Out 123 0.1

Box 13 (Deferred

compensation) Reduced to

Equal Box 5 Minus Box 1a 196 0.1

Source: Congressional Budget Office tabulations of 1997 tax information

returns.

Note: n.a. = not applicable; * = less than 0.05 percent.

a. Modified by using the same scale factor as in Box 1.

Once the W-2s were reconciled to the amounts on the

1040s, it was possible to tabulate deferred compensation

by type (see Table A-3). That tabulation showed that of

the nearly $100 billion in deferred compensation, 92

percent was in the form of 401(k)-type plans, and 7

percent was in the form of 457 plans.
APPENDIX A REFINEMENT OF THE STATISTICS OF INCOME DATABASES 19

Table A-3.

Deferred Compensation by Implied Type of Plan

401(k) or

403(b) Plan 457 Plan

All Other

Plans

Total Deferred

Compensation

Pension Coverage Box Checked? Yes No Yes n.a.

Compensation Excluded from Adjusted

Gross Income but Subject to Medicare

Hospital Insurance Tax? Yes Yes No n.a.

Amount of Deferred Compensation

(Millions of dollars) 91,597 7,302 399 99,052

Source: Congressional Budget Office tabulations of 1997 tax information returns.

Note: n.a. = not applicable.

APPENDIX

B

Detailed Tabulations by Age, Income,

and Marital Status/Earner Role

The tables in the body of this report contain distributions by age, income, and marital status/earner role

without showing how one category might be correlated

with another. This appendix presents the complete crosstabulations for the following variables (the text tables with

the corresponding summary information are shown in

parentheses):

Table B-1: Number of workers (Tables 2, 3, and 4);

Table B-2: Percentage of workers contributing to a

401(k)-type plan (Table 3);

Table B-3: Percentage of workers contributing to an individual retirement account (IRA) (Table 4);

Table B-4: Percentage of workers participating in any

tax-deferred retirement plan (Table 2);

Table B-5: Average contribution to a 401(k) or 403(b)

plan (Table 5); and

Table B-6: Average contribution to an IRA (Table 5).

Table B-7 cross-tabulates the number of nonearning

spouses in one-earner families, the percentage of nonearning spouses contributing to an IRA, and their average IRA

contribution by age and income group.
22 UTILIZATION OF TAX INCENTIVES FOR RETIREMENT SAVING

Table B-1.

Number of Workers Eligible for Tax-Deferred Retirement Saving in 1997

(In thousands)

Adjusted Gross Income Group Under 30 30 to 44 45 to 59 60 and Over All Ages

Single Earners

Under $20,000 23,167.3 9,223.0 3,885.9 2,159.2 38,435.4

$20,000 to < $40,000 5,524.1 7,388.2 3,846.5 971.0 17,729.7

$40,000 to < $80,000 874.4 3,126.3 2,416.8 505.2 6,922.6

$80,000 to < $120,000 58.1 337.1 301.7 96.0 792.8

$120,000 to < $160,000 11.7 102.6 84.2 27.0 225.6

$160,000 and Over 19.3 104.4 117.2 40.9 281.7

All Income Groups 29,654.9 20,281.5 10,652.2 3,799.1 64,387.8

Married/Sole Earners

Under $20,000 871.8 1,625.1 1,172.1 1,336.9 5,006.0

$20,000 to < $40,000 793.7 2,002.1 1,569.9 1,000.2 5,365.9

$40,000 to < $80,000 299.2 2,272.5 1,930.1 1,076.8 5,578.6

$80,000 to < $120,000 32.4 520.7 529.1 348.0 1,430.1

$120,000 to < $160,000 9.7 200.1 223.2 127.5 560.5

$160,000 and Over 8.6 357.9 413.2 233.8 1,013.5

All Income Groups 2,015.3 6,978.4 5,837.6 4,123.2 18,954.5

Married/Primary Earners

Under $20,000 344.4 399.1 284.7 146.1 1,174.3

$20,000 to < $40,000 1,401.9 2,003.9 1,169.4 310.6 4,885.8

$40,000 to < $80,000 1,867.2 6,126.4 3,754.7 573.7 12,322.1

$80,000 to < $120,000 312.8 1,870.6 1,897.0 214.0 4,294.4

$120,000 to < $160,000 53.4 506.3 516.7 79.0 1,155.4

$160,000 and Over 32.4 456.6 591.2 115.4 1,195.5

All Income Groups 4,012.1 11,362.9 8,213.7 1,438.8 25,027.5

Married/Secondary Earners

Under $20,000 352.8 409.4 264.0 148.2 1,174.3

$20,000 to < $40,000 1,674.1 1,859.1 1,055.0 297.6 4,885.8

$40,000 to < $80,000 2,455.4 6,176.1 3,215.2 475.4 12,322.1

$80,000 to < $120,000 457.9 2,089.6 1,572.3 174.6 4,294.4

$120,000 to < $160,000 95.0 518.0 483.5 58.9 1,155.4

$160,000 and Over 47.6 530.3 528.8 88.8 1,195.5

All Income Groups 5,082.8 11,582.5 7,118.7 1,243.5 25,027.5

All Earners

Under $20,000 24,736.3 11,656.7 5,606.7 3,790.3 45,790.1

$20,000 to < $40,000 9,393.7 13,253.2 7,640.7 2,579.4 32,867.1

$40,000 to < $80,000 5,496.2 17,701.3 11,316.8 2,631.0 37,145.3

$80,000 to < $120,000 861.1 4,817.9 4,300.1 832.5 10,811.6

$120,000 to < $160,000 169.9 1,327.1 1,307.6 292.5 3,097.0

$160,000 and Over 107.9 1,449.2 1,650.3 478.8 3,686.2

All Income Groups 40,765.2 50,205.4 31,822.2 10,604.6 133,397.3

Source: Congressional Budget Office tabulations of 1997 tax information returns.
APPENDIX B DETAILED TABULATIONS BY AGE, INCOME, AND MARITAL STATUS/EARNER ROLE 23

Table B-2.

Percentage of Workers Contributing to 401(k)-Type Plans in 1997

Adjusted Gross Income Group Under 30 30 to 44 45 to 59 60 and Over All Ages

Single Earners

Under $20,000 3.6 9.6 10.3 5.7 5.8

$20,000 to < $40,000 30.6 36.5 36.7 24.7 34.1

$40,000 to < $80,000 54.5 52.2 50.7 29.1 50.3

$80,000 to < $120,000 57.0 59.0 53.4 25.0 52.6

$120,000 to < $160,000 43.6 49.7 47.6 20.4 45.1

$160,000 and Over 51.3 46.0 43.9 21.5 42.0

All Income Groups 10.3 27.1 30.9 14.4 19.3

Married/Sole Earners

Under $20,000 5.3 7.6 7.2 5.8 6.6

$20,000 to < $40,000 25.3 22.0 26.5 14.4 22.4

$40,000 to < $80,000 44.8 44.8 43.4 26.3 40.7

$80,000 to < $120,000 32.1 55.5 47.8 25.0 44.7

$120,000 to < $160,000 15.5 59.6 46.7 30.4 47.1

$160,000 and Over 39.5 48.9 49.6 23.4 43.2

All Income Groups 19.6 31.0 32.6 16.6 27.2

Married/Primary Earners

Under $20,000 3.8 6.2 7.0 10.1 6.2

$20,000 to < $40,000 25.4 23.7 23.3 21.0 23.9

$40,000 to < $80,000 43.8 46.7 47.2 37.1 46.0

$80,000 to < $120,000 69.3 65.1 62.5 45.0 63.3

$120,000 to < $160,000 73.6 64.5 62.8 41.0 62.6

$160,000 and Over 68.2 57.6 53.0 27.0 52.7

All Income Groups 36.5 45.5 47.3 31.4 43.8

Married/Secondary Earners

Under $20,000 4.3 3.2 5.9 0.9 3.8

$20,000 to < $40,000 9.1 11.1 11.8 7.7 10.3

$40,000 to < $80,000 30.2 29.6 29.3 19.2 29.2

$80,000 to < $120,000 50.3 43.7 48.7 31.6 45.8

$120,000 to < $160,000 48.6 47.4 46.7 30.9 46.4

$160,000 and Over 53.4 45.6 38.7 16.8 40.7

All Income Groups 23.8 29.8 32.0 16.4 28.5

All Earners

Under $20,000 3.7 8.9 9.3 5.7 5.9

$20,000 to < $40,000 25.6 28.8 29.1 18.3 27.1

$40,000 to < $80,000 39.5 41.5 42.2 27.9 40.4

$80,000 to < $120,000 57.0 54.4 55.0 31.5 53.1

$120,000 to < $160,000 54.2 55.9 53.1 32.4 52.4

$160,000 and Over 56.4 50.2 46.9 22.9 45.4

All Income Groups 15.0 32.4 35.7 17.8 26.7

Source: Congressional Budget Office tabulations of 1997 tax information returns.
24 UTILIZATION OF TAX INCENTIVES FOR RETIREMENT SAVING

Table B-3.

Percentage of Workers Contributing to Individual Retirement Accounts in 1997

Adjusted Gross Income Group Under 30 30 to 44 45 to 59 60 and Over All Ages

Single Earners

Under $20,000 1.4 2.3 4.9 2.9 2.1

$20,000 to < $40,000 4.5 5.9 9.7 10.4 6.6

$40,000 to < $80,000 9.8 8.3 10.6 8.6 9.3

$80,000 to < $120,000 11.9 11.7 20.6 12.7 15.2

$120,000 to < $160,000 16.2 25.0 24.9 11.1 22.9

$160,000 and Over 22.8 19.4 19.4 7.8 18.0

All Income Groups 2.3 4.9 8.7 5.9 4.4

Married/Sole Earners

Under $20,000 0.6 3.1 4.3 5.4 3.5

$20,000 to < $40,000 2.5 5.0 9.0 12.2 7.1

$40,000 to < $80,000 2.8 6.5 10.7 11.2 8.7

$80,000 to < $120,000 3.1 10.0 12.0 10.9 10.8

$120,000 to < $160,000 26.8 11.1 19.7 14.9 15.7

$160,000 and Over 16.3 16.2 17.2 11.7 15.6

All Income Groups 1.9 6.2 9.9 9.7 7.6

Married/Primary Earners

Under $20,000 1.3 4.1 6.5 10.3 4.6

$20,000 to < $40,000 2.5 6.2 12.1 17.3 7.2

$40,000 to < $80,000 3.5 5.2 7.2 13.2 5.9

$80,000 to < $120,000 10.6 7.2 9.2 12.7 8.6

$120,000 to < $160,000 13.9 10.2 16.5 21.5 13.9

$160,000 and Over 9.9 14.6 20.3 17.0 17.5

All Income Groups 3.7 6.3 9.9 14.5 7.5

Married/Secondary Earners

Under $20,000 0.1 3.6 6.5 10.5 4.1

$20,000 to < $40,000 1.6 4.4 9.7 16.7 5.3

$40,000 to < $80,000 3.0 4.9 6.9 11.8 5.3

$80,000 to < $120,000 7.2 6.7 9.5 14.2 8.1

$120,000 to < $160,000 12.8 9.8 13.7 22.4 12.3

$160,000 and Over 11.3 16.0 19.0 22.6 17.6

All Income Groups 3.0 5.8 9.2 14.4 6.6

All Earners

Under $20,000 1.4 2.5 4.9 4.4 2.4

$20,000 to < $40,000 3.5 5.6 9.9 12.7 6.6

$40,000 to < $80,000 4.3 5.8 8.4 11.2 6.8

$80,000 to < $120,000 8.6 7.6 10.5 12.3 9.2

$120,000 to < $160,000 14.2 11.3 16.5 17.8 14.3

$160,000 and Over 13.3 15.9 19.0 14.7 17.0

All Income Groups 2.5 5.6 9.3 9.5 5.9

Source: Congressional Budget Office tabulations of 1997 tax information returns.
APPENDIX B DETAILED TABULATIONS BY AGE, INCOME, AND MARITAL STATUS/EARNER ROLE 25

Table B-4.

Percentage of Workers Participating in Any Tax-Deferred Retirement Plan in 1997

Adjusted Gross Income Group Under 30 30 to 44 45 to 59 60 and Over All Ages

Single Earners

Under $20,000 18.5 28.0 28.5 20.3 21.9

$20,000 to < $40,000 59.2 66.8 69.5 55.0 64.3

$40,000 to < $80,000 80.3 82.3 84.5 57.6 81.0

$80,000 to < $120,000 80.7 87.5 85.1 46.4 81.1

$120,000 to < $160,000 66.7 84.3 77.6 44.1 76.1

$160,000 and Over 73.6 78.9 76.0 54.8 73.8

All Income Groups 28.1 52.0 58.5 35.3 41.1

Married/Sole Earners

Under $20,000 24.6 21.6 25.9 22.5 23.4

$20,000 to < $40,000 56.2 52.9 55.9 39.2 51.7

$40,000 to < $80,000 71.7 73.2 76.3 53.5 70.4

$80,000 to < $120,000 48.8 81.0 79.4 50.1 72.2

$120,000 to < $160,000 69.1 82.0 79.8 58.4 75.5

$160,000 and Over 62.8 78.4 79.7 53.4 73.0

All Income Groups 44.8 56.4 61.4 39.8 53.1

Married/Primary Earners

Under $20,000 23.9 23.0 27.6 35.6 25.9

$20,000 to < $40,000 53.8 52.4 56.5 50.2 53.6

$40,000 to < $80,000 73.1 76.2 78.1 68.5 76.0

$80,000 to < $120,000 85.9 87.1 88.0 75.4 86.8

$120,000 to < $160,000 92.9 86.8 86.0 72.0 85.7

$160,000 and Over 88.3 84.6 83.6 60.5 81.9

All Income Groups 63.5 72.8 76.5 61.8 71.9

Married/Secondary Earners

Under $20,000 9.8 13.8 20.5 17.9 14.6

$20,000 to < $40,000 29.7 29.3 36.1 32.1 31.1

$40,000 to < $80,000 58.1 56.5 59.0 45.6 57.1

$80,000 to < $120,000 76.1 69.9 75.5 61.7 72.3

$120,000 to < $160,000 69.8 73.8 74.1 63.7 73.1

$160,000 and Over 78.2 75.5 71.9 51.2 72.2

All Income Groups 47.4 54.7 59.8 42.6 54.1

All Earners

Under $20,000 18.7 26.4 27.5 21.6 22.0

$20,000 to < $40,000 52.9 57.2 60.1 45.6 55.7

$40,000 to < $80,000 67.4 70.0 73.7 56.2 69.8

$80,000 to < $120,000 78.9 79.0 82.2 58.6 78.7

$120,000 to < $160,000 76.8 80.8 80.0 61.7 78.4

$160,000 and Over 79.2 79.3 78.3 54.8 75.7

All Income Groups 34.8 57.9 64.0 41.5 51.0

Source: Congressional Budget Office tabulations of 1997 tax information returns.
26 UTILIZATION OF TAX INCENTIVES FOR RETIREMENT SAVING

Table B-5.

Average Employee Contribution to a 401(k)-Type Plan in 1997

(In dollars)

Adjusted Gross Income Group Under 30 30 to 44 45 to 59 60 and Over All Ages

Single Earners

Under $20,000 442 552 861 627 570

$20,000 to < $40,000 1,397 1,510 1,921 2,034 1,596

$40,000 to < $80,000 2,910 3,375 3,856 4,410 3,524

$80,000 to < $120,000 6,127 5,452 5,356 6,058 5,502

$120,000 to < $160,000 4,647 6,890 8,504 9,036 7,523

$160,000 and Over 6,071 7,521 8,029 9,466 7,765

All Income Groups 1,442 2,154 2,856 2,719 2,190

Married/Sole Earners

Under $20,000 434 914 948 1,017 881

$20,000 to < $40,000 1,303 1,453 1,878 1,873 1,626

$40,000 to < $80,000 2,597 3,158 3,563 3,661 3,337

$80,000 to < $120,000 3,212 5,380 5,353 5,224 5,314

$120,000 to < $160,000 7,467 6,135 7,069 5,437 6,407

$160,000 and Over 8,441 8,120 8,145 7,190 8,018

All Income Groups 1,776 3,544 4,002 3,567 3,580

Married/Primary Earners

Under $20,000 323 1,547 2,080 824 1,326

$20,000 to < $40,000 977 1,224 1,621 1,573 1,261

$40,000 to < $80,000 1,875 2,359 3,013 3,169 2,524

$80,000 to < $120,000 3,676 4,446 4,824 4,910 4,566

$120,000 to < $160,000 5,059 5,695 6,169 5,463 5,863

$160,000 and Over 7,380 7,497 7,723 7,183 7,590

All Income Groups 2,078 3,216 4,107 3,673 3,398

Married/Secondary Earners

Under $20,000 179 831 929 615 638

$20,000 to < $40,000 438 625 1,047 755 679

$40,000 to < $80,000 1,045 1,389 1,880 1,532 1,450

$80,000 to < $120,000 2,157 2,806 3,203 3,455 2,903

$120,000 to < $160,000 3,342 4,084 4,193 3,005 4,029

$160,000 and Over 4,075 5,228 5,305 4,826 5,188

All Income Groups 1,321 2,178 2,810 2,333 2,239

All Earners

Under $20,000 436 622 924 780 630

$20,000 to < $40,000 1,266 1,420 1,828 1,859 1,504

$40,000 to < $80,000 1,863 2,454 3,102 3,404 2,621

$80,000 to < $120,000 3,120 4,053 4,392 4,813 4,148

$120,000 to < $160,000 4,213 5,315 5,795 5,181 5,451

$160,000 and Over 5,836 6,895 7,217 7,043 7,015

All Income Groups 1,592 2,681 3,466 3,213 2,772

Source: Congressional Budget Office tabulations of 1997 tax information returns.
APPENDIX B DETAILED TABULATIONS BY AGE, INCOME, AND MARITAL STATUS/EARNER ROLE 27

Table B-6.

Average Employee Contribution to an Individual Retirement Account in 1997

(In dollars)

Adjusted Gross Income Group Under 30 30 to 44 45 to 59 60 and Over All Ages

Single Earners

Under $20,000 1,457 1,476 1,492 1,704 1,490

$20,000 to < $40,000 1,418 1,398 1,544 1,617 1,468

$40,000 to < $80,000 1,529 1,595 1,732 1,919 1,663

$80,000 to < $120,000 1,304 1,766 1,925 1,803 1,824

$120,000 to < $160,000 2,053 1,930 1,957 2,033 1,948

$160,000 and Over 1,841 1,828 1,828 1,906 1,830

All Income Groups 1,455 1,503 1,627 1,718 1,549

Married/Sole Earners

Under $20,000 1,196 1,338 1,620 1,538 1,493

$20,000 to < $40,000 934 1,339 1,736 1,715 1,585

$40,000 to < $80,000 1,714 1,407 1,526 1,628 1,519

$80,000 to < $120,000 2,000 1,906 1,829 1,456 1,764

$120,000 to < $160,000 2,769 1,833 1,827 1,816 1,854

$160,000 and Over 2,071 1,919 1,939 1,985 1,941

All Income Groups 1,334 1,535 1,693 1,656 1,626

Married/Primary Earners

Under $20,000 756 1,473 1,875 1,147 1,461

$20,000 to < $40,000 765 1,433 1,690 1,937 1,548

$40,000 to < $80,000 1,191 1,378 1,481 1,690 1,431

$80,000 to < $120,000 1,811 1,678 1,793 1,860 1,758

$120,000 to < $160,000 1,500 1,816 1,879 1,812 1,836

$160,000 and Over 1,875 1,948 1,963 2,046 1,964

All Income Groups 1,250 1,532 1,707 1,780 1,613

Married/Secondary Earners

Under $20,000 1,750 1,616 1,314 1,564 1,495

$20,000 to < $40,000 1,224 1,584 1,669 1,649 1,593

$40,000 to < $80,000 1,157 1,318 1,550 1,692 1,410

$80,000 to < $120,000 1,706 1,792 1,757 1,992 1,783

$120,000 to < $160,000 1,820 1,831 1,811 2,015 1,838

$160,000 and Over 1,722 1,889 1,879 1,851 1,876

All Income Groups 1,365 1,566 1,686 1,752 1,615

All Earners

Under $20,000 1,444 1,459 1,530 1,568 1,489

$20,000 to < $40,000 1,306 1,416 1,624 1,712 1,517

$40,000 to < $80,000 1,323 1,419 1,574 1,699 1,502

$80,000 to < $120,000 1,720 1,764 1,804 1,734 1,776

$120,000 to < $160,000 1,842 1,844 1,856 1,877 1,854

$160,000 and Over 1,839 1,907 1,921 1,959 1,918

All Income Groups 1,407 1,530 1,675 1,713 1,593

Source: Congressional Budget Office tabulations of 1997 tax information returns.
28 UTILIZATION OF TAX INCENTIVES FOR RETIREMENT SAVING

Table B-7.

Contributions to Individual Retirement Accounts by Nonearning Spouses in 1997

Adjusted Gross Income Group Under 30 30 to 44 45 to 59 60 and Over All Ages

Number of Nonearning Spouses (Thousands)

Under $20,000 1,184 1,469 1,186 1,264 5,006

$20,000 to < $40,000 1,193 1,821 1,538 922 5,366

$40,000 to < $80,000 594 2,245 1,877 967 5,579

$80,000 to < $120,000 62 578 502 317 1,430

$120,000 to < $160,000 37 219 202 112 561

$160,000 and Over 28 417 393 195 1,014

All Income Groups 3,096 6,744 5,703 3,790 18,955

Percentage of Nonearning Spouses Contributing to an IRA

Under $20,000 0.8 2.1 2.9 2.4 2.1

$20,000 to < $40,000 2.0 3.4 7.6 7.1 5.0

$40,000 to < $80,000 4.6 5.9 8.3 8.3 7.1

$80,000 to < $120,000 6.3 8.4 11.4 11.3 10.2

$120,000 to < $160,000 16.2 10.3 18.1 11.9 14.0

$160,000 and Over 17.7 14.2 16.2 10.4 14.6

All Income Groups 2.4 5.3 8.2 6.5 6.0

Average Contribution (Dollars)

Under $20,000 1,483 1,590 1,687 1,662 1,632

$20,000 to < $40,000 1,164 1,616 1,467 1,567 1,499

$40,000 to < $80,000 1,443 1,425 1,512 1,514 1,479

$80,000 to < $120,000 1,487 1,632 1,802 1,351 1,625

$120,000 to < $160,000 1,780 1,637 1,713 1,827 1,716

$160,000 and Over 1,714 1,892 1,848 1,882 1,864

All Income Groups 1,406 1,592 1,611 1,569 1,583

Source: Congressional Budget Office tabulations of 1997 tax information returns.
APPENDIX

C

Supplemental Data from the Survey

of Consumer Finances

Because there is no pressing administrative need

for it, much potentially useful information about taxdeferred saving is not recorded on either Form 1040 or

any of the tax information returns (such as Forms W-2

and 5498). Much of that information—for example,

401(k) balances, employer contributions to 401(k)s, and

expected benefits from defined-benefit plans—is available

from the Survey of Consumer Finances (SCF), conducted

by the Federal Reserve Board every three years. One such

survey was conducted in 1998, making it comparable with

income tax returns filed for tax year 1997. Although the

SCF collects more-complete data on retirement plan contributions and balances than the Internal Revenue Service

(IRS) does, it is based on a much smaller sample (fewer

than 7,000 households) and depends largely on the

memories and recordkeeping practices of voluntary participants. Furthermore, the SCF does not concern itself with

details of the tax code, such as whether a plan is “qualified.” Nevertheless, the SCF data are considered to be of

high quality and are widely used in studies of the distribution of wealth in the United States. For this analysis, the

Congressional Budget Office (CBO) used the survey to

answer questions for which tax-return data were inadequate.

Reconciliation of Data 

In cases in which items from the IRS’s Statistics of Income

(SOI) files overlapped with those from the SCF, CBO

gave precedence to the SOI data. Four important categories of data, however, could be derived only from the

SCF:

# Employer contributions to defined-contribution

plans;

# The number of workers participating in definedbenefit plans;

# The number of workers participating in noncontributory defined-contribution plans; and

# The number of workers expecting to collect retirement benefits from former employers in the future.

To ensure consistency with the SOI data, the relationships

between variables from the SCF were maintained, but

values were adjusted to conform to control totals from

the SOI. For example, CBO estimated employer contributions to defined-contribution plans by calculating the ratio

of employer contributions to employee contributions from

the SCF by income, age, or marital status/earner role, and

then applied those ratios to employee contributions in the

same categories as tabulated from the SOI data. 

Estimating the number of active participants in definedbenefit plans was more complicated. Both the SCF and

SOI files were initially split between those participating

in 401(k)-type plans and those participating only in

noncontributory plans. The percentage of workers in each

of those groups who were participating in a definedbenefit plan was calculated from the SCF, and those percentages were applied to the corresponding group in the

SOI file. For workers participating only in a noncon-
30 UTILIZATION OF TAX INCENTIVES FOR RETIREMENT SAVING

tributory plan, the percentage participating in a definedcontribution plan was calculated from the SCF and was

applied to the same group in the SOI file. 

The estimate of the number of inactive participants in

employment-based plans has three parts: those who owned

an individual retirement account (IRA) to which they did

not contribute in the current year; those who collected

benefits from former employers; and those who expected

to collect benefits from former employers in the future.

The first two groups can be tabulated from the SOI file.

To estimate the third group, CBO identified in the SCF

workers who were not participating in an employmentbased plan and calculated the percentage expecting benefits

from a former employer in the future. CBO then applied

that percentage to workers in the SOI file who were not

participating in employment-based plans.

Discussion of Tables C-1 Through C-3

Table C-1 provides a finer breakdown of worker participation in employment-based plans than that presented

in Table 3. The SCF makes it possible to tabulate all participants in noncontributory plans, not just those who do

Table C-1.

Workers’ Participation in 401(k)-Type and Noncontributory Plans in 1997

Percentage of Workers Participating in

Noncontributory Plans Noncontributory

Number of 401(k)- Defined- Defined- Either Plan Plus

Workers Type Contribution Benefit Type of 401(k)-Type

(Thousands) Plans Plans Plans Plan Plan

By Age Cohort

Under 30 40,765 13 10 12 19 1

30 to 44 50,205 29 10 21 28 6

45 to 59 31,822 32 7 26 31 9

60 and Over 10,605 16 6 15 20 4

All Cohorts 133,397 24 8 19 25 5

By Adjusted Gross Income

Under $20,000 45,790 5 7 9 15 1

$20,000 to $40,000 32,867 24 11 22 30 5

$40,000 to $80,000 37,145 36 10 28 35 10

$80,000 to $120,000 10,812 49 6 26 30 11

$120,000 to $160,000 3,097 49 7 17 22 7

$160,000 and Over 3,686 43 8 16 23 9

All Income Groups 133,397 24 8 19 25 5

By Marital Status/Earner Role

Single Earners 64,388 17 9 15 21 2

Married Earners

Sole 18,955 25 9 20 26 6

Primary 25,028 40 10 26 33 10

Secondary 25,028 25 8 20 25 5

All Earners 133,397 24 8 19 25 5

Source: Congressional Budget Office tabulations of 1997 individual income tax returns and tax information returns (for data on numbers of workers and 401(k)-type

plans) and tabulations of the Federal Reserve Board’s 1998 Survey of Consumer Finances blended with CBO’s tabulations for 1997 (for data in all other

categories).
APPENDIX C SUPPLEMENTAL DATA FROM THE SURVEY OF CONSUMER FINANCES 31

Table C-2.

Total Participation by Workers in Tax-Deferred Retirement Plans in 1997

Percentage of

Percentage of Percentage of Workers Workers Who

Number of Workers Who Who Are Inactive Participants Are Active or

Workers Are Active In Employment- Inactive

(Thousands) Participants Based Plansa In IRAsb Participants

By Age Cohort

Under 30 40,765 35 2 3 38

30 to 44 50,205 58 4 10 66

45 to 59 31,822 64 7 19 77

60 and Over 10,605 42 24 23 75

All Cohorts 133,397 51 6 11 61

By Adjusted Gross Income

Under $20,000 45,790 22 6 2 30

$20,000 to $40,000 32,867 56 7 7 66

$40,000 to $80,000 37,145 70 5 15 80

$80,000 to $120,000 10,812 79 5 27 89

$120,000 to $160,000 3,097 78 5 34 91

$160,000 and Over 3,686 76 6 41 94

All Income Groups 133,397 51 6 11 61

By Marital Status/Earner Role

Single Earners 64,388 41 4 6 47

Married Earners

Sole 18,955 53 10 16 69

Primary 25,028 72 4 17 80

Secondary 25,028 54 5 13 66

All Earners 133,397 51 6 11 61

Memorandum:

Nonearning Spouse 18,954 6 5 1 12

Source: Congressional Budget Office tabulations of 1997 individual income tax returns and tax information returns (for data on numbers of workers, percentage

of active participants, and percentage owning an individual retirement account) and tabulations of the Federal Reserve Board’s 1998 Survey of Consumer

Finances blended with CBO’s tabulations for 1997 (for data in all other categories).

a. Includes workers who do not participate in their current employer’s plan but either receive or anticipate benefits from a former employer’s plan.

b. Includes workers who own an IRA but did not contribute to it in 1997.

not also participate in 401(k)-type plans. Furthermore,

it allows noncontributory plans to be divided into definedbenefit and defined-contribution plans.

The SCF also makes it possible to tabulate inactive as well

as active participants, as detailed in Table C-2. As noted

above, inactive participants are those who did not contribute to a retirement savings plan in 1997 but were either

already collecting benefits, expected to receive benefits

from a former employer’s plan, or owned an IRA from

which they could draw funds after their retirement. The

resulting patterns are quite different from those revealed

through active participation alone, particularly among the

various age groups.
32 UTILIZATION OF TAX INCENTIVES FOR RETIREMENT SAVING

Table C-3. 

Average Contributions to Defined-Contribution Plans in 1997

(In dollars)

Category By Employee By Employer

By Age Cohort

Under 30 1,592 1,224

30 to 44 2,681 1,993

45 to 59 3,466 2,414

60 and Over 3,213 1,820

All Cohorts 2,772 1,992

By Adjusted Gross Income

Under $20,000 630 547

$20,000 to $40,000 1,504 1,101

$40,000 to $80,000 2,621 1,781

$80,000 to $120,000 4,148 2,691

$120,000 to $160,000 5,451 3,890

$160,000 and Over 7,015 5,835

All Income Groups 2,772 1,992

By Marital Status/Earner Role

Single Earners 2,190 1,769

Married Earners

Sole 3,580 2,714

Primary 3,398 2,325

Secondary 2,239 1,485

All Earners 2,772 1,992

Source: Congressional Budget Office tabulations of 1997 individual income tax returns and tax information returns (for data on employee contributions) and tabulations

of the Federal Reserve Board’s 1998 Survey of Consumer Finances blended with CBO’s tabulations for 1997 (for data on employer contributions).

Table C-3 supplements the information on employee

contributions to 401(k)-type plans, which is provided in

Table 5, by presenting estimates of employer contributions

as well. Those contributions are, on average, smaller than

those of employees but follow the same general income

and age patterns.

This publication and others by CBO

are available at the agency's Web site:

www.cbo.gov